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Scenarios for potential macroeconomic impact of Brexit on Hungary

Author

Listed:
  • László Békési

    (Magyar Nemzeti Bank (Central Bank of Hungary))

  • Zsolt Kovalszky

    (Magyar Nemzeti Bank (Central Bank of Hungary))

  • Tímea Várnai

    (Magyar Nemzeti Bank (Central Bank of Hungary))

Abstract

The purpose of this paper is to illustrate the economic impact mechanism of the secession of Great Britain from the European Union (Brexit) on the Hungarian economy, and to quantify the domestic growth risks. Several international studies have dealt with this topic using partial analysis and model based simulations, but only partial analyses are available regarding the Hungarian economy. Our analysis provides a broader picture by using the new macroeconomic forecast model of the MNB. Upon determining the exogenous assumptions in our simulations we relied on the central bank experts’ broad knowledge. The applied model handles the wealth heterogeneity in the decision making processes of the households and the corporate sector. This feature makes the model suitable for explaining prolonged after-crisis recovery and the role of the financial accelerator feedback mechanism. In the course of illustrating the economic impact mechanism we show the main channels through which Brexit can spread over to Hungarian economic growth. Besides the primary channels, our analysis includes the secondary channel effects increasingly in the spotlight: we investigate the shock resilience ability of the financial system, and analyze the potential room for manoeuvre for fiscal policy.

Suggested Citation

  • László Békési & Zsolt Kovalszky & Tímea Várnai, 2017. "Scenarios for potential macroeconomic impact of Brexit on Hungary," MNB Occasional Papers 2017/125, Magyar Nemzeti Bank (Central Bank of Hungary).
    • Handle: RePEc:mnb:opaper:2017/125
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    File URL: http://www.mnb.hu/letoltes/mnb-op-125-final.pdf
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    References listed on IDEAS

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    5. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393, Elsevier.
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    8. Begg, Iain, 2016. "The EU budget and UK contribution," LSE Research Online Documents on Economics 67030, London School of Economics and Political Science, LSE Library.
    9. Rafal Kierzenkowski & Nigel Pain & Elena Rusticelli & Sanne Zwart, 2016. "The Economic Consequences of Brexit: A Taxing Decision," OECD Economic Policy Papers 16, OECD Publishing.
    10. Portes, Jonathan, 2016. "Immigration, free movement and the EU referendum," National Institute Economic Review, National Institute of Economic and Social Research, vol. 236, pages 14-22, May.
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    Cited by:

    1. Ruiz Estrada Mario Arturo & Evangelos Koutronas & Donghyun Park, 2019. "The economic Gordian Knot of Brexit: an East and Southeast Asian perspective," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(6), pages 2797-2820, November.

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    More about this item

    Keywords

    Macroeconomic modelling; Simulation; Alternative Scenarios; Brexit; Economic Outlook;
    All these keywords.

    JEL classification:

    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions

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